Producer Prices Jump Up In March - April 11, 2014

The Producer Prices Index (PPI), the leading gauge of wholesale price inflation, rose by a strong 0.5% last month, easily eclipsing the 0.1% expectation, according to data released by the U.S. Labor Department earlier this morning. The PPI had fallen slightly in February, declining by 0.1%. That was the first drop in the PPI since a similar nominal contraction last May.

Specifically, the PPI's 0.5% gain was largely accounted for by a sharp 1.1% increase in food prices. Interestingly, energy costs, another volatile component of this series, tumbled 1.2%. What drove the PPI sharply higher, in addition to food, were wholesale services, which ticked up by 0.7%. Prices for final demand goods, however, were unchanged.

Interestingly, if we back out the volatile food and energy components, to get the so-called core rate of producer price inflation, we find that such costs were up by 0.6% last month, a notable advance.

All told, this jump in prices was the fastest increase in nine months, owing largely to the higher costs experienced by clothing retailers, grocery stores, and wholesalers of chemical goods, according to the government.

Meanwhile, the 0.5% spike in prices last month pushed the year-over-year increase in the PPI to 1.4% from just 0.9% in February. That is the highest 12-month rate since last August. Also, there is some sense that inflationary pressures may be finally building in the pipeline, as the prices of such unprocessed goods as sheet metal and animal feed now are rising sharply.

Importantly, this report was probably cheered by the Federal Reserve, which has expressed some concerns about the lack of price inflation, seeing this absence, until now, as a potential threat to the viability of the long, but uninspiring, economic expansion. Thus, taken as a whole, this was a somewhat reassuring inflation issuance. We will have the companion Consumer Price Index release next week. Expectations are that this metric will show a more contained increase. Historically, the CPI is a somewhat more stable pricing category.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.